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How Investors Can Grab Better Returns for Computer and Technology Using the Zacks ESP Screener
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Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.
Should You Consider Paypal?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Paypal (PYPL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.97 a share, just 14 days from its upcoming earnings release on November 3, 2022.
By taking the percentage difference between the $0.97 Most Accurate Estimate and the $0.95 Zacks Consensus Estimate, Paypal has an Earnings ESP of +2.65%. Investors should also know that PYPL is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
PYPL is just one of a large group of Computer and Technology stocks with a positive ESP figure. Adobe Systems (ADBE - Free Report) is another qualifying stock you may want to consider.
Adobe Systems is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on December 15, 2022. ADBE's Most Accurate Estimate sits at $3.50 a share 56 days from its next earnings release.
Adobe Systems' Earnings ESP figure currently stands at +0.09% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.49.
PYPL and ADBE's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>
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How Investors Can Grab Better Returns for Computer and Technology Using the Zacks ESP Screener
Earnings are arguably the most important single number on a company's quarterly financial report. Wall Street clearly dives into all of the other metrics and management's input, but the EPS figure helps cut through all the noise.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, or the top 15% and top 5% of stocks, respectively, should outperform the market. Strong Buy stocks should outperform more than any other rank.
Should You Consider Paypal?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Paypal (PYPL - Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.97 a share, just 14 days from its upcoming earnings release on November 3, 2022.
By taking the percentage difference between the $0.97 Most Accurate Estimate and the $0.95 Zacks Consensus Estimate, Paypal has an Earnings ESP of +2.65%. Investors should also know that PYPL is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
PYPL is just one of a large group of Computer and Technology stocks with a positive ESP figure. Adobe Systems (ADBE - Free Report) is another qualifying stock you may want to consider.
Adobe Systems is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on December 15, 2022. ADBE's Most Accurate Estimate sits at $3.50 a share 56 days from its next earnings release.
Adobe Systems' Earnings ESP figure currently stands at +0.09% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $3.49.
PYPL and ADBE's positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They're Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>